Another study confirms this. The standard of living of Canadians is in constant decline. The situation is even worse than before the pandemic.
The indicator comes from GDP and its variations per hour worked and per capita, from which we can make a nod to productivity and standard of living. On this basis, it is known and documented that productivity growth in Canada has lagged behind countries with so-called developed economies for decades. Particularly compared to the United States. “What is new is that productivity has actually reversed itself over the last five years, has declined, taking real GDP per capita with it on a downward trajectory. » Douglas Porter, chief economist of BMO, even speaks of a sustained decline in recent years without precedent since the post-war period.
The pandemic effect has little or nothing to do with it, with the economist noting close to normal growth in productivity in the United States during this atypical period. In fact, business sector productivity in Canada has seen an average annual decline of 0.3% over the past five years, compared to a gain of 1.7% south of the border. “GDP per hour worked is the fundamental element of the standard of living. “So the recent decline in productivity is clear evidence that Canadians on average are worse off than before the pandemic — it’s not just a perception,” he writes.
This recent reversal follows a two-decade period during which Canadian productivity fell to a growth rate of just 0.5%, a point below the U.S. average. Still based on growth, at the OECD level, Canada has slipped down the rankings. Long-term improvement in living standards requires higher productivity, says the Organization for Economic Co-operation and Development. “Low productivity growth since 2015 has led to widening gaps in GDP per capita between Canada and better-performing economies. »
All combined with demographic expansion driven by unbridled immigration, real GDP per capita has fallen over the past year and is no longer higher than it was in 2017. “Having kept pace with United States on this measure for 25 years, Canada has been far behind since 2015,” adds the BMO chief economist.
Multiple causes
By way of explanation, we can note that economic activity has shifted towards sectors with more limited productivity gains. More precisely, it has increased especially in public services from 2015. Not to mention the lack of investment in non-residential structures, machinery and equipment and intellectual property, which has been rather lackluster since 2015. “The relatively low level of investment by businesses and, therefore, that of foreign direct investment are as much a symptom as a cause of the challenges facing Canada,” emphasizes Douglas Porter. Without forgetting the weight of the oil industry in the equation. “This weakness was only truly exposed when capital spending in the resources sector collapsed after the oil price collapse in 2015.”
The BMO economist’s study lists some commonly cited main causes:
A lack of competition in a variety of industries and sectors;
A lack of entrepreneurial spirit and/or low risk-taking;
A relatively large public sector, accompanied by high marginal income taxes;
Low investment by businesses, particularly for the latest technologies;
The weakness of R&D in the private sector;
Interprovincial barriers.
This list used by the author also evokes a fixation on housing and an excessive emphasis on residential construction. This vision of yesterday is today transcended by the current housing crisis, which rather calls on private and public forces to invest in an increase in the supply of affordable housing.
Realignment of interventions
It has become obvious that an improvement in living standards calls for a realignment of economic policies with, as an emergency, the energy transition and the opportunities it offers. Without fundamental reorientations, few improvements in the Canadian standard of living seem to be on the horizon. “The OECD predicts that Canada will rank last among the organization’s members for real GDP per capita growth until 2060,” TD economist Marc Ercolao has already pointed out.
In recent years, the emphasis has often been on the distribution of resources (read wealth) rather than their expansion (read creation), and on supporting short-term consumption rather than investment. long-term. What the pandemic has exacerbated. And the BMO economist broadens the thinking: “Rather than force-feeding capital spending through massive subsidies, policymakers should look at a fundamental question: why are businesses so reluctant to invest in Canada? »